Market Review from Realm Investment Management – week ending 24th February 2023
Minutes from the most recent meeting of the Federal Reserve released early last week showed that “almost all” policymakers were in favour of slowing down the pace of rate increases and thought the 0.25% increase at the meeting was the way to go (although “a few” officials could have supported a 0.5% hike). However, on Friday the Fed’s preferred measure of inflation, the Core PCE price index (excludes food and energy) came in above expectations causing stocks to sell-off at the end of the week. The annual rate of inflation came in at 4.7%, reigniting expectations that the Fed will need to keep rates higher for longer. The yield on the US 10yr Treasury Note ended the week close to 4%, its highest level since November.
A similar story in Europe, where stronger-than-expected economic data raised odds that the ECB will stick with interest rate hikes.
Increasing tensions between the US and China and stronger-than-anticipated US employment and consumer spending data are also weighing on sentiment.
In the UK there was an unexpected uptick in PMI data for February indicating a bounce in business activity for both the manufacturing and services sectors. The data increases the possibility that a recession in the UK, should it happen, may be milder than previously expected – it also increases the likelihood that the Bank of England will raise interest rates again in March. Gilt yields rose after the data was released and today (Monday) the yield on the UK 10yr Gilt has reached 3.8%, its highest level since October.
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